A smart contract developer recently pitched a new Ethereum request for comment (ERC) proposal that involved a circuit breaker-like mechanism. The developer, who goes by Meir Bank on Twitter, presented the Ethereum Improvement Protocol (EIP) as a solution for DeFi’s delayed response time in mitigating hacks.
Meir Bank took to Twitter earlier today to share the proposal with the blockchain community:
1/ Announcing ERC 7265: Circuit Breaker
— Meir Bank (@MeirBank) July 3, 2023
We are fixing the biggest problem with DeFi Security – lack of response time to mitigate hacks.
Built by @Diyahir @tcb_00 @real_philogyhttps://t.co/4KQDYEK2H7
The new proposal was aimed at limiting the damage dealt by hacks on decentralized finance (DeFi) protocols, which Meir Bank described as the biggest problem with DeFi security. According to the smart contract developer, ERC 7265 would prevent DeFi protocols from losing all of their total value locked (TVL).
In the unfortunate case that a DeFi project gets exploited, hackers are quick to drain its wallets leading to a rapid decline in the TVL. The circuit breaker protection offered by the latest proposal would protect the project’s funds by enforcing highly customized rate limit parameters on every crypto asset in its treasury.
According to Meir Bank, most protocols can upgrade their security protocols through governance votes and enforce the EIP to mitigate the damage of a potential hack. Being controlled by a governance forum would also eliminate the risk of centralization.
The smart contract stated that his team had carried out data analysis and concluded that the TVL drawdowns in DeFi protocols never exceeded 40% on a daily basis under normal conditions. In the interest of minimizing downtime, the triggering of the circuit breaker would be followed by a cooldown period just long enough to determine if a hack occurred.
If configured accurately, the circuit breaker would trigger a killswitch to halt the draining of funds should the withdrawals cross the 20% daily threshold. The correct configuration would also prevent the mechanism from generating false positives. Meir Bank emphasized that there were very few downsides for governed DeFi projects to integrate ERC 7265.
